Why you shouldn’t dread an auditFEATURE STORIES Wednesday, January 2nd, 2013
By Vonna Laue
There are many reasons why an organization might have a financial audit. Whether it’s to comply with debt covenants, satisfy an accreditation or membership requirement, or provide an accountability tool and best practice, most people would agree that the audit process can seem painful. However, an audit provides significant value.
The first step is to find an auditor who is competent and experienced at working with churches. The benefit and result will be your confidence that the engagement team understands your operations and can provide valuable input. Remember that you are choosing a ministry partner, not just a professional who will provide a signed audit opinion at the end of the engagement.
Once you have selected an auditor and signed an engagement letter, here are several practical suggestions to minimize the “pain” of an audit.
Communicate deadlines. Any deadlines that must be met, such as audit committee and board meetings, bank submissions or grant deadlines, need to be communicated early in the process. There are many pieces to the audit puzzle and several of those are not seen by the church. Once an auditor walks out of your door, his or her work is only partially complete. A mutual understanding of expectations will minimize unpleasant surprises later.
Prepare throughout the year. Auditors will provide lists of items to prepare prior to their visits. These are not merely suggestions. If they are not completed prior to the auditors’ arrival, the process will be off to a rocky start. A little-known secret of the auditing profession is that an item that takes you four hours to prepare may only take an auditor 20 minutes to test. If you’re not completely ready when your auditors arrive onsite, they will catch up to you very quickly.
Also keep in mind that the list you’re given is not comprehensive. The items you prepare will lead to additional questions that can’t be anticipated before the audit begins. If new reports are requested, both you and the auditors may want to make note so the items can be added to the preparation list in the following year.
Also, certain reconciliations are difficult to do once a year. Everyone realizes you shouldn’t reconcile the bank statement once a year, and the same is true of other functions as well. Consider reconciling the donor system to the general ledger contribution accounts monthly and comparing the quarterly Form 941 to the salary accounts each quarter.
Also, if you know that a purchase will be capitalized as an asset (like a new vehicle), you might consider filing a copy of the invoice in a folder so you don’t have to pull it again later. Many ministries we work with have an “audit” file that they place information in throughout the year.
Finish strong. The adage of “out of sight, out of mind” is true even for an audit. It is important that as much of the audit process be completed as possible while the auditors are onsite. Once they leave, they will be working on other audits and you will feel like you are done with the process. If there are open items, make sure you agree to completion deadlines so that time doesn’t drag on. When financial statements aren’t completed within a reasonable time frame, this is probably the single biggest reason why. Fortunately, it can be avoided with a little planning and communication.
Implement suggestions. For a ministry, the value of the audit isn’t just an audit report validating last year’s numbers. The most valuable part is often the management comment letter providing suggestions for improvements and highlighting any areas of control deficiency or other concerns. To realize the full value of an audit, your church should strive to implement each of the auditor’s recommendations or have a valid reason why another response makes sense.
If leadership and the board take these comments seriously, they will set the tone at the top and communicate the importance of doing things right. Implementing the auditor’s recommendation may also help improve the audit process in future years.
If you have been apprehensive about an audit or dissatisfied with your current audit process, consider these suggestions. They may move you from dreading an audit like you would a root canal to thinking of it as an annual checkup and cleaning.
Vonna Laue is a partner in the CPA firm of CapinCrouse LLP, Brea, CA. She
is the author of Essential Guide to Church Finance. www.CapinCrouse.com